JSW Order 400,000 Tonnes Of Coal At Lower Prices

JSW Steel Ltd is believed to have placed orders to import 400,000 tonnes of coal at renegotiated lower prices by the end of this fiscal.

Seshagiri Rao, director (finance) at JSW Steel, said the Sajjan Jindal-led company has renegotiated the prices of coking coal to be imported in the January-February period to $175 per tonne from $300-305 a tonne earlier with one of its suppliers. DNA Money has learnt that JSW Steel has already received the delivery of over 200,000 tonnes of coal in this quarter at renegotiated prices. Rao, however, declined to comment on the quantities of coal it plans to import and has already imported.

Indian steelmakers were forced to ask coal vendors to reduce the prices of the commodity after international spot prices declined by as much as 66% in the second half of 2008. International spot prices of coking coal had fallen to less than $100 per tonne in the second half of 2008 due to the ongoing global economic crisis from over $300 per tonne in the first half.

Companies such as JSW Steel and Steel Authority of India Ltd (SAIL), however, couldn't enjoy the benefits of reduced input prices as they were bound by long-term contracts to buy the commodity at fixed prices. "We are in the process of negotiating contracts for the April-March period (of fiscal 2009-10)," Rao said. He refused to put a figure to the price the company expects. However, it is learnt that JSW Steel is trying to get vendors to agree to $100 per tonne.
Lower-priced long-term contracts in the next fiscal may ease input cost pressures on the company, which reported a decline in operating margins in the December quarter of FY09 due to increase in raw material costs.

Meanwhile, rival Tata Steel, too, is asking vendors to cut the prices of imported coking coal. "Tata Steel is looking at all input costs, including coal, to bring those in line with depressed steel prices," a
Tata Steel spokesperson told DNA Money. The spokesperson, however, declined to say if the company was successful in securing lower prices for the commodity after a sharp correction in international spot prices in the second half of 2008.

Tata Steel's operating margins fell 10 percentage points to 4.9% in the quarter ended December 31, 2008, as the company felt the full impact of high-priced coking coal in the period. It needs 7 million tonne of coal this fiscal, in line with its projected production of 6.8 million tonne of steel against 5 million tonne last fiscal.
The steel major imports 30% of its total coal requirements.

Source: DNA India